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MBS and Treasuries have stepped back a bit from their best levels of the day. There's no drama involved, just a calm end to the morning's snowball buying. Trading conditions are slow and light with most of the day's activity being seen by 12:15pm.

MBS are only off 2 ticks from their highs (so that's 1/2 of 1/8th of a point in terms of price) and 10yr yields are up from 2.696 to 2.707.

At these levels and at this point, positive reprices are still possible and negative reprices aren't on the radar yet, but we wanted to give you an update on the shift. We'll remain fairly well-insulated from any change in reprice risk as long as Fannie 3.5s are over 100-25 (Fannie 4.0s haven't even seen a detectable amount of volatility this afternoon).

10yr yields bounced several times at 2.712 just after 10am, setting up clear short-term technical resistance (i.e. a line in the sand that takes on increased importance simply because it's being revisited frequently). After the resistance broke around 11:30am, a small flood of follow-through brought yields into the 2.69's.

This brings yields well below Friday's lowest levels. MBS, on the other hand, are just now making it back to their best levels from Friday. They'd have to gain roughly twice as much to match the 2-day move seen in 10yr Treasuries, but they're at least following the technical break.

We're already seeing signs of the snowball buying having run its course, but if current gains are held, positive reprices are possible.

Some thoughts... First of all, this is statistically significant move for the index--the biggest downward movement in the history of the survey. Here's a shorter and longer term look:

Given the record move, we can see just how little attention bond markets are paying to this data as it's barely moved the needle. 10yr yields were at 2.721 when the data hit and only rallied about 1bp. They've already given most of that back.

While the NAHB Index carries some mystique as a potential early indicator of broad-scale shifts in the housing market (it led the major move down in 2006-2008), it had been relatively much less useful in 2013. If market participants are going to believe in that mystique again, it might require another instance of the report to corroborate--preferably one where weather can't be used as an excuse.

The extent to which weather may have actually played a role--at least as far as this data is concerned--can be seen in the "54 vs 60 previously" reading on the 6-month outlook. In other words, even in the coming months where weather will undoubtedly be less forbidding, the numbers are still pretty rotten.

Category: MBS, UPDATE

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2/18/14

Bond Markets Trying to Hold Moderate Overnight Improvement

Treasuries began the overnight session in slightly weaker territory with 10yr yields momentarily as high as 2.763. A few hours later, weak data out of Germany and tepid UK inflation brought core EU yields quickly lower with Treasuries coming along for the ride. They've since been sideways to slightly higher between 2.718 and 2.74.

MBS opened right in line with Friday's latest levels and picked up a quick 4 ticks (.125) as the Treasury rally extended into the domestic session, but are now up only 2 ticks on the day with Fannie 4.0s at 104-07.

There hasn't been any significant economic data cross the wires. NY Fed Manufacturing was out at 8:30am and Treasury International Capital a few minutes ago, but neither are significant market movers. That said, the morning's main bounce from strength to weakness occurred right in line with the Manufacturing data.

Paradoxically, the report was weaker than expected (which would tend to send yields lower instead of higher to whatever extent bonds cared about the report. The other possibility is that the 'employment' component stayed fairly strong. This could be taken as a hint that winter weather won't have as much of an impact on payrolls data as some fear it might.

MBS and Treasuries have stepped back a bit from their best levels of the day. There's no drama involved, just a calm end to the morning's snowball buying. Trading conditions are slow and light with most of the day's activity being seen by 12:15pm.

MBS are only off 2 ticks from their highs (so that's 1/2 of 1/8th of a point in terms of price) and 10yr yields are up from 2.696 to 2.707.

At these levels and at this point, positive reprices are still possible and negative reprices aren't on the radar yet, but we wanted to give you an update on the shift. We'll remain fairly well-insulated from any change in reprice risk as long as Fannie 3.5s are over 100-25 (Fannie 4.0s haven't even seen a detectable amount of volatility this afternoon).

10yr yields bounced several times at 2.712 just after 10am, setting up clear short-term technical resistance (i.e. a line in the sand that takes on increased importance simply because it's being revisited frequently). After the resistance broke around 11:30am, a small flood of follow-through brought yields into the 2.69's.

This brings yields well below Friday's lowest levels. MBS, on the other hand, are just now making it back to their best levels from Friday. They'd have to gain roughly twice as much to match the 2-day move seen in 10yr Treasuries, but they're at least following the technical break.

We're already seeing signs of the snowball buying having run its course, but if current gains are held, positive reprices are possible.

Some thoughts... First of all, this is statistically significant move for the index--the biggest downward movement in the history of the survey. Here's a shorter and longer term look:

Given the record move, we can see just how little attention bond markets are paying to this data as it's barely moved the needle. 10yr yields were at 2.721 when the data hit and only rallied about 1bp. They've already given most of that back.

While the NAHB Index carries some mystique as a potential early indicator of broad-scale shifts in the housing market (it led the major move down in 2006-2008), it had been relatively much less useful in 2013. If market participants are going to believe in that mystique again, it might require another instance of the report to corroborate--preferably one where weather can't be used as an excuse.

The extent to which weather may have actually played a role--at least as far as this data is concerned--can be seen in the "54 vs 60 previously" reading on the 6-month outlook. In other words, even in the coming months where weather will undoubtedly be less forbidding, the numbers are still pretty rotten.

Treasuries began the overnight session in slightly weaker territory with 10yr yields momentarily as high as 2.763. A few hours later, weak data out of Germany and tepid UK inflation brought core EU yields quickly lower with Treasuries coming along for the ride. They've since been sideways to slightly higher between 2.718 and 2.74.

MBS opened right in line with Friday's latest levels and picked up a quick 4 ticks (.125) as the Treasury rally extended into the domestic session, but are now up only 2 ticks on the day with Fannie 4.0s at 104-07.

There hasn't been any significant economic data cross the wires. NY Fed Manufacturing was out at 8:30am and Treasury International Capital a few minutes ago, but neither are significant market movers. That said, the morning's main bounce from strength to weakness occurred right in line with the Manufacturing data.

Paradoxically, the report was weaker than expected (which would tend to send yields lower instead of higher to whatever extent bonds cared about the report. The other possibility is that the 'employment' component stayed fairly strong. This could be taken as a hint that winter weather won't have as much of an impact on payrolls data as some fear it might.

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